The 1993 SNA divides military acquisitions into offensive weapons and their means of delivery, and all
other. The former are excluded from capital formation regardless of their life length. This treatment implies
that “defence” is not a service provided by government using military hardware as associated assets.
Further, weapons that have already been expensed can actually be taken out of stock for use or for exports
and would have to be balanced by a negative component in government final consumption. Should the line
between gross capital formation and intermediate consumption be drawn differently?

Country comments

Number of country comments for selected issue:

50

Date posted

Source

Comment

10/10/2006

Denmark

There are no new developments of this issue since the discussions prior to the 1993 SNA. Considering that this issue is still controversial, gives rise to unresolved methodological problems, and that it is foreseen that the necessary source data will in many cases not be made available (secrecy) and have to be replaced by assumptions about fixed shares of the defence budget or other conventions. Consequently it is preferable to leave this issue out of the updating process.

10/10/2006

Sweden

Agreement with proposal

10/10/2006

Germany

We also reject including all military weapons systems into fixed capital formation (instead of into intermediate consumption).The treatment.of specific parts of military equipment was changed already in the 1993 SNA. There are no new relevant aspects, so that another change would be in conflict with the "fundamental principles". Also, we very much doubt whether military weapons, whose main purpose – as is generally known – is the destruction of assets – should be considered as capital formation. We also doubt very much that the basic data required for separate representation of weapons systems will be sufficient (military secrets) and that there are internationally comparable service life data for the consumption of fixed capital.

15/09/2006

United Kingdom

The recommendations are good especially as they align with the way government often does its own accounts making the new recommendations easier to implement accurately than the current SSA.

15/09/2006

Latvia

We reject including all military weapons systems into fixed capital
formation. In case of changing this issue the difficulties will raise in
service life data for consumption of fixed capital.

15/09/2006

Norway

Statistics Norway agrees with the recommendation that military weapon systems/equipment should be treated as fixed assets as long as they fulfil the general criteria as other fixed assets, and that expendable durable military goods should be treated as inventories. Since the implementation of 1993 SNA, Statistics Norway has had some difficulties in distinguishing between military equipment that should be recorded as gross fixed capital formation and equipment that should be recorded as final consumption expendi¬tures. The new recommendation will make it clearer how to treat the equipment, and at least in Norway treating all military weapon systems/equipment as fixed assets will be in line with how they are assessed in the source data. Regarding consumption of fixed capital of military equipment, we se some challenges related to estimating the capital stock of the "new " assets.

18/08/2006

Italy

We are not in favour of including military weapon systems in GFCF.

31/07/2006

Mongolia

NSO of Mongolia agrees that expenditure on military weapon systems should be treated as gross fixed capital formation. We also agree that expendable durable military goods, such as bombs, torpedoes, and spare parts, should be treated as inventories. Because it is meet with current practice of Mongolia.

31/07/2006

Israel

We agree with the AEG recommendations on these issues.

28/07/2006

Lithuania

In general we support the recommendations.

27/07/2006

Egypt

We disagree with the AEG recommendation that all military weapons to be considered as capital assets. It will affect the GDP. Considering the durable military goods as change of inventories will raise lots of problems in practical application. We support the present treatment in present SNA.

06/01/2006

State Bank of Pakistan

The AEG recommendations on classification of military weapon systems as fixed assets except the expendable durable military goods, such as bombs, torpedoes, and spare parts, as inventories are based on the same criteria as other fixed assets-that is, produced assets that are themselves used repeatedly, or continuously, in processes of production for more than one year seems very logical. But practically its implementation would be difficult for the developing countries. Estimation of military expenditures in developing countries would not reflect the true picture as some countries lack statistical information about the detailed commodity breakdown of the military weapon systems for calculating capital consumption.

BI agrees with the recommendation since the information supports analysis on government investment productivity. However, this information is not available as public data due to confidentiality.

09/05/2005

Central Bank of Iran

We disagree with the AEG recommendations that military weapons should be classified as fixed assets. In our view some military equipment provide a service which is notdirectly observable and computable in the framework of the GDP and so considering all military weapons as GFCF increases the value of GDP without having any impact on production account as output. In respect with recording expendable durable military goods as changes in inventory, it might be difficult to distinguish between these goods and military weapons.

06/05/2005

Vietnam

Recognising that weapons system provide a nation for protecting the liberty and property of it’s citizents. Existing military equipment have value and can be sold or transfered, to have life time for more than one year. But I do not agree with recommendation that military expenditures for military purpose (such as warship, fighter, aircrafts, tanks and other military equipments) as fixed asset and it could not be treated as fixed capital formation because:First: destructire military weapon system designed for combate and it is only used when war happen.Second: Military expenditure does not generate tangible production, essentially it does not generate the value added.Third: The problem of great importance are that GDP will be raised affectedly by the value of consumption of fixed capital on existing military and as a corollary, net saving will be raised affectedly by the value of net fixed capital formation, especially in small producing countries or non producing countries importing much weapons; In addition, for war countries it make undeveloped production, scarce goods deficit budget, low living standard ete…but their GDP grow very highly.Fourth: Military expenditure, especially in weapons are confidential informations of nation. So Statistical offices will be very difficult to get information on service lives to calculate consumption of fixed capital.

01/04/2005

Poland

In the scope of military expenditures we support the AEG recommendations regarding including military expenditures into gross fixed capital formation. We do not support the part of the proposition that suggests revealing military expenditures as separate position in frame of gross fixed capital formation.

The AEG recommendations are generally logical and relevant, but practically some issues may be difficult to implement. For example, estimating military expenditures in developing countries may not reflect the true picture as the necessary data for acceptable estimates of consumption of fixed capital is limited. More over, some countries lack statistical information about the detailed commodity breakdown of the military weapon systems for calculating capital consumption.

18/10/2004

National Bank of Tajikistan

The National Bank of Tajikistan agrees with the recommendations of the AEG.

14/10/2004

National Bank of Poland

In principle we favor the recommendation according to which the classification of military weapon systems as fixed assets are to be based on the same criteria as other fixed assets: produced assets that are themselves used repeatedly or continuously in processes of production for more than one year. Other items should be treated as materials and supplies inventories.
Since it is doubtful if such estimates can be developed for countries that are secretive about military expenditures, and international comparability should be treated as a priority, we are inclined to think that the SNA 1993 treatment of military expenditures should not be changed.

13/10/2004

European Central Bank

The AEG has approved the recommendation to apply the same criteria for the classification of military weapon systems as fixed assets as for other fixed assets (and show gross capital formation on defense as a separate sub-item of this category). Although the ECB would tend to agree in principle with these proposals, a final decision can be reached only when a consistent solution can be proposed for all sub-items under discussion, and implications for related statistics have been assessed. The ECB has taken note that the AEG would study the consequences of the proposed decision on balance of payments and government finance statistics.

We agree that military weapon system should be treated as fixed assets, and that defense gross fixed capital formation (GFCF) should be presented separately from other types of GFCF. We also agree that expendable durable military goods should be treated as inventories since they do not meet the criteria set for other fixed assets.

05/10/2004

Bank of Korea

We think that defense services are very important function of the government. Therefore, the issue needs more consideration. We anticipate a broader discussion of concepts on what should be considered economic assets in general government.
In addition, the proposed recommendation of the AEG to treat military weapon systems as gross fixed capital formation may be difficult to implement in the absence of requisite data in Korea.

04/10/2004

South African Reserve Bank

We do not agree with the recommendations of the AEG. See also arguments of Mr. Vanoli.

Latvia is in agreement with the recommendations of the AEG and we do not have any particular comment at this stage.

30/09/2004

Bank of Guyana

There should be a clear line between capital formation and Intermediate consumption.

27/09/2004

Austria

Statistics Austria agrees with the AEG recommendations. The treatment of bombs, torpedoes, etc as inventories should be clarified in the final text. The introduction of a new asset category is desirable, but secrecy problems may arise.

20/09/2004

India

The practice is to account the expenditures for military purposes as intermediate consumption and consequently under the governmental final consumption expenditure. The problem of current use or exports of past stocks of weapons can be dealt with by introducing “change in stocks” of such items. However, in this case, the stocks of weapons will also become capital formation, which is contradictory to the present treatment of such items in 1993 SNA. Although, we can ignore the current use of past stocks on the ground that they have already been shown as final consumption, there appears to be no alternative to record exports as a negative entry under government final consumption.
The proposed recommendation of the AEG to treat weapon systems as gross fixed capital formation may be difficult to implement in the absence of requisite data in many countries. Further, the issues relating to estimation of CFC and life of assets in this case are complicated.

24/08/2004

United Kingdom

We agree that expenditure on military weapon systems should be treated as gross fixed capital formation; and that defence GFCF should be presented separately from other types of GFCF. We also agree that expendable durable military goods, such as bombs, torpedoes, and spare parts, should be treated as inventories.

13/08/2004

Malaysia

We do not favor the recommendation of the AEG on military expenditure. One criterion in the definition of GFCF is " ... used repeatedly or continuously in other processes of production for more than one year" (10.33). Capitalizing military weapons systems increases the value of gross fixed capital formation, but without a corresponding increase in production capacity.
A related issue would be the availability of detailed data necessary to distinguish between one-time use and otherwise.

Canada agrees that the SNA93 should be changed to include military weapon systems as assets and purchases of same as gross fixed capital formation. This will eliminate the inconsistency in SNA93 that not all assets are included that contribute to the delivery of defence services.

11/08/2004

Slovak Republic

Slovakia supports to include expenditure on military weapon systems as gross fixed capital formation (GFCF) if the same criteria as for other fixed assets will be met.
We also agree with modification of asset classification due to the fact that defense GFCF should be presented separately from other types of GFCF.
However expendable durable military goods, such as bombs, torpedoes, and spare parts, in our opinion should be treated as inventories since they do not meet the criteria set for other fixed assets (produced assets that are themselves used repeatedly, or continuously, in processes of production for more than one year).

11/08/2004

Botswana

Our view on this is that military expenditures and for that matter defence services are very important function of any government, however, it will remain a controversial issue particularly in recording them in national accounts framework, hence it should be treated with a lot of caution because of the many perceptions and interpretations attached thereof; it can distort policy formulation particularly because of huge expenses incurred world-wide on this function. Should we talk of a productive assets when in fact the population is at risk? Based, on countries experiences it is important to note that this does not only stop at research but has far reaching implications in terms realities of many countries because of the outcries in the uses of defensive assets.
In fact there is one question of thought whether it is not right time to subject such issues to world-wider debate, which will not only limit such discussions with experts in fields but to the a greater extent involve wider debate, because the SNA framework is widely used in policy formulation of all countries.

11/08/2004

South Africa

We do not agree with the recommendations of the AEG. See also arguments of Mr Vanoli.

11/08/2004

USA

The United States also strongly supports the initiative to account for expenditures on military equipment the same as for other durable equipment purchased by government. Defense is an important function of the government, and we endorse the proposal to treat defense equipment as fixed assets.

11/08/2004

Norway

We agree that military weapon systems should be treated as fixed assets (when they fulfill the general criteria as other fixed assets), and that expendable durable military goods should be treated as inventories. It would be useful to show GFCF in defense equipment separately.

11/08/2004

Denmark

Statistics Denmark doesn`t reject the recommendation of the Canberra II group. However, we think that the issue needs more investigation.
Have the nature of military equipment changed sufficiently to justify by its own means a reclassification of its use from intermediate consumption to fixed assets?
The fact that the present classification is inconsistent with the latest international public sector accounting standards isn`t in itself a sufficient argument for changing the SNA93.
The provision of data for an appropriate implementation of the recommended reclassification of military equipment, especially the information needed for the distinction between expendable military items, changes in stocks and fixed assets, could be a serious problem due to the sensitive nature of these data.
We think that a broader discussion of concepts and principles of what should be considered production in the general government sector and what shouldn`t, is needed before any decision on a major change is taken.

11/08/2004

Jordan

The AEG recommendations conceptually are acceptable but there should be more emphasis on the practical issues regarding the treatment of military expenditures, most of developing countries will not be able to obtain the necessary data that enable them to have acceptable estimates of consumption of fixed capital. The fixed assets are used in the military activities in a way that is different than it is used in other activities. The fixed assets in non-military activities should be used directly to produce services, while, in military activities there is no need to use most of the fixed assets in production especially during the peace time.

11/08/2004

The Netherlands

We agree with the AEG-recommendations. In addition, we propose to distinguish the relevant military expenditures into those that are purely related to the mili-tary, and other capital formation. This proposal was also made at the Canberra II Group meeting in Paris.